The country's gold consumption in 2020 could fall as much as 50 per cent from a year ago to the lowest level in nearly three decades as a nationwide lockdown has closed jewellery stores during key festivals and the wedding season.
The drop in consumption by the world's second-biggest gold buyer could limit a rally in global prices, which hit a more than seven-year high earlier this month. The fall in demand could also narrow India's trade deficit and support the faltering rupee.
"We have never seen such kind of demand destruction happening. Sales are zero during the lockdown," N. Anantha Padmanaban, chairman of the All India Gem and Jewellery Domestic Council told Reuters.
He said India's gold consumption in 2020 could fall to 350 tonnes to 400 tonnes, the lowest since 1991, and down from 690.4 tonnes in 2019.
Government extended a lockdown for 130 crore people until at least May 3 as the number of coronavirus cases exceeded 12,000.
Weddings, one of the biggest drivers of gold purchases, usually happen in summer but this year they are postponed due to the lockdown, Mr Padmanaban said, in a big setback for the jewellery industry. He hopes a return to some normality in a few months could revive demand by year end.
Religious festivals, such as Gudi Padwa and Akshaya Tritiya, also help to boost gold demand but this year people were confined to their homes during the festivals, Prithviraj Kothari, managing director of Mumbai-based bullion dealer RiddiSiddhi Bullions, said.
The jewellery industry is also worried about a slowing economy, job and pay cuts that could hit demand even after the lockdown is lifted.
India is likely to record its worst growth performance in four decades this year due to the coronavirus outbreak, the World Bank said.
Consumers make gold purchases with disposable income, which could fall for millions of people engaged in the unorganised sector, Surendra Mehta, secretary at the India Bullion and Jewellers Association, said.
"People would first try to buy essentials after the lockdown and at the end they will think about luxury goods like gold."
Even before the lockdown gold demand was faltering in India and imports plunged 55 per cent in March quarter due to a record high prices.
After surging 25 per cent in 2019, local gold prices have risen by another 20 per cent so far in the year, making gold pricey for millions of rural Indians, said Mangesh Devi, a jeweller in the western state of Maharashtra.